A growing cohort of Australians who buy later in life and are facing rising interest rates and cost-of-living pressures will retire with outstanding housing debt, increasing the pressure on policymakers to reform the pension system and to increase housing supply.
Refinancing inquiries among those aged 55 and over surged 12 per cent year-on-year in February, the fastest growth in any cohort, according to credit bureau Equifax. Among borrowers aged 46 to 55, inquiries rose 8 per cent.
First home buyers Cameron and Chantelle Hill, pictured with their duck Peanut and dogs Loki and Lexi, feared being forced to rent for life so they made huge sacrifices to buy a house. Dan Peled
Australians are paying off mortgages much later in life, and an increasing number do not expect to retire mortgage-free. More than 40 per cent of those surveyed by Loan Market Group, a brokerage that claims a 25 per cent national market share, do not expect to have paid off their loans before retirement. Almost one-quarter do not even have a financial retirement strategy.
Australia’s aged pension system was designed with the idea that people would retire owning their home. The family home is not counted in means-testing for pension eligibility while financial assets are, and pension payments are too low to cover private rental market costs.
Boosting ownership, which has fallen from a peak of 71 per cent in 1966 to 67 per cent at the last census in 2021, is one argument for reformsto curb tax breaks on housing investment.
Another is to reform pension eligibility, says Matthew Bowes, a senior associate in Grattan Institute’s Economic Prosperity and Democracy Program
“We’re going to see more renters retiring in future,” Bowes said. “At the moment, they are disadvantaged if they have savings outside the family compared with people having savings in the family home.”
The think tank advocates for the value of a family home above a threshold of $750,000 to be included in the pension means test, a measure it estimates could save the budget about $4 billion annually.
“We’re seeing increasing concern by Australians about intergenerational equity and this is one reform that could go towards alleviating that,” Bowes said.
Without major changes, the trend of older home buyers is likely to continue.
The average age of a first home buyer is 34, with one in five first home buyer loans issued last year going to people aged over 40, according to Westpac, suggesting that fewer Australians will be free of their 30-year housing debt at the end of their working life.
‘We were just desperate’
Chantelle Hill and her husband, Cameron, rushed in February to buy a three-bedroom house in the semi-rural suburb of Bellmere, on the outskirts of Brisbane’s north, for $825,000.
The couple, both 30, compromised on property size and location, moving more than an hour away from their family and friends, so they could get into the market before house prices rose above their borrowing capacity.
“We had to get into the market now or else we wouldn’t be getting into it. We were just desperate to find what we could get into. This isn’t really going to be our long-term house,” Chantelle Hill said.
“I just felt like, if we didn’t get in now, then we weren’t going to get in and we were just going to be left behind and be stuck renting for the rest of our lives.”
The national median dwelling value is $930,000,according to Cotality. There are no affordable entry-level houses in any Australian capital city, the type suitable for first home buyers looking to start a family. In Sydney, 55 per cent of suburbshave medians more than nine times higher than the median household income.
The generational divide is clear in the declining home ownership figures. Baby Boomers are three times more likely to have bought a house before turning 40 than Millennials, according to the latest Australian Bureau of Statistics data.
The decrease in home ownership and increase in Australians retiring with home loan debt will have knock-on effects for wealth planning and the superannuation system.
Hill said she and her husband had not thought about retirement when they bought their home.
“We just believe we’re still young, and that’s something for maybe 10 or so years down the track to think about,” she said.
Grattan Institute’s Bowes said people with high super balances could use some of that to pay off outstanding mortgage debt when they retired.
“As Australians retire with ever larger super balances, it’s appropriate that some of those savings are used to pay for housing,” he said.
But the big housing challenge that governments needed to tackle were ensuring there was greater choice of housing available for downsizers in cities, boosting rent assistance to support retirees who rent, and shifting away from stamp duty as a tax base, he said.
The pitfalls of only relying on super
Wealth adviser Patricia Howard said getting into the property market was the most important step to having a financially secure retirement, even if it meant making compromises.
“It’s really important, even for people in their 40s, if they can take that first step on the property ladder, to do that,” said Howard, managing director at Howard Osmond Financial Services.
“The worst situation you could find yourself in is if you decide, ‘I’m never going to buy the house of my dreams, so I’m just going to ignore the property market and just going to let my super accumulate and hope that it will look after me’.”
The people likely to struggle most in retirement would be those receiving the full aged pension and Commonwealth Rent Assistance, she said.
“The rental supplement in this country is so insufficient that no age pensioner can survive on it, even living in a caravan park. It is just that bad.”
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